LATEST NEWS TECHNOLOGY AND FINANCE

Job seekers speak with with job recruiters while they attend the Coast to Coast job fair in New York, May 7, 2012.

Credit: Reuters/Eduardo Munoz

By Lucia Mutikani

WASHINGTON | Fri Oct 5, 2012 1:05am EDT

WASHINGTON (Reuters) - Fears of government austerity likely kept U.S. job gains modest and the unemployment rate elevated in September, an outcome that could weigh on President Barack Obama's re-election bid.

Employers are expected to have added 113,000 jobs to their payrolls last month, according to a Reuters survey of economists. That would be up from 96,000 in August, but it would still fall short of what is needed to cut the jobless rate.

Indeed, economists expect the unemployment rate, a key focus in the race for the White House, to tick up by a tenth of a percentage point to 8.2 percent as Americans come back into the labor force to resume the hunt for work.

The Labor Department's closely watched report, which will be released at 8:30 a.m. on Friday, will be the second last before the November 6 election that pits Obama against Republican Mitt Romney. If economists are on the mark, it would present a seventh straight month of lackluster job growth.

Whether or how much another modest rise in payrolls would hurt Obama, however, is not clear. "If they stay in a slightly positive territory they probably won't change the minds of too many voters," said Matt Jacobsmeier, an assistant political science professor at the University of New Orleans.

A Reuters/Ipsos poll released on Thursday after Wednesday's first presidential debate showed Romney gained ground and is now viewed positively by 51 percent of voters. Obama's favorability rating remained unchanged at 56 percent.

A survey by career network Beyond.com published on Thursday showed working Americans preferred Obama, while their unemployed counterparts favored Romney.

Economists blame the so-called fiscal cliff for the slowdown in hiring, which has left millions of Americans working either part-time or unemployed and too discouraged to look for jobs.

The Congressional Budget Office has warned that a failure by Congress to avoid the automatic tax hikes and government spending cuts that will suck about $600 billion out of the economy next year would knock the economy back into recession.

"Businesses are not hiring people, they want to wait and see how the election evolves and how the political landscape shapes up," said Sung Won Sohn, an economics professor at California State University Channel Islands in Camarillo, California.

"Everyone has kind of battened down the hatches."

Job growth was strong at the start of the year but began to brake abruptly in March. Over the six months through August, it averaged about 96,670 per month - well below the 125,000 normally needed just to hold the jobless rate steady.

HUGE JOBS DEFICIT

The economy is still about 4.7 million jobs short of where it stood when the 2007-09 recession started. The jobless rate has been stuck above 8 percent for more than three years, the first time this has happened since the Great Depression.

Persistently poor labor market conditions led the Federal Reserve in September to announce a plan to buy $40 billion worth of mortgage-backed securities each month until it sees a sustained turnaround in employment.

The central bank, which also pledged to keep overnight lending rates near zero until at least mid-2015, hopes the purchases drive down long-term borrowing costs and spur the recovery.

The Fed's ultra easy stance has started to free up credit, giving a lift to consumers, economists said. That, in turn, likely helped lift retail hiring in September.

Temporary help jobs, which are often seen as a harbinger for permanent hiring, are also expected to show an improvement after falling in August for the first time since March.

Manufacturing payrolls are expected to have been flat in September, after posting their first drop in almost a year in August, but a sharp jump in automobile sales during the month suggests an upside risk.

Little improvement is seen in construction employment, which has remained subdued even as home builders have been breaking ground on new projects at a slightly faster clip this year.

Government payrolls are expected to have recorded their seventh straight month of declines in September.

With the overall pace of job growth anemic, average hourly earnings are expected to have risen just 0.2 percent last month after being flat in August.

Jack White performs at the Hackney Weekend festival at Hackney Marshes in east London, June 23, 2012.

Credit: Reuters/Olivia Harris

By Rob Cox

NEW YORK | Sun Sep 30, 2012 7:20pm EDT

NEW YORK (Reuters) - Jack White didn't quite repeat the rock star meltdown by Green Day frontman Billie Joe Armstrong, but he did enrage fans by stalking off the stage just 45 minutes into his Saturday night concert at New York City's famed Radio City Music Hall.

The critically acclaimed guitarist behind the White Stripes and The Raconteurs - and now touring behind his solo record "Blunderbuss" - pulled the plug after 12 songs lasting just 45 minutes.

White, 37, thanked the crowd and exited stage right, leaving the sold-out venue chanting for more. The crowd's enthusiasm initially turned to perplexity as roadies removed White's guitars but transformed into anger as the curtain fell on the stage.

No official explanation was given for White's quick exit. While audience members had been told not to use their cellphone cameras, early in the concert White was seen exchanging words with someone video recording the concert from the seating area nearest the stage.

In between songs, White also seemed underwhelmed by the crowd response, at one point asking, "Jesus Christ, is this an NPR convention?"

Radio City security officials scrambled to barricade the stage door as angry concert goers crowded the exit and, once outside, banged on two parked tour buses. Other fans crowded the lobby to return t-shirts, records and other merchandise purchased ahead of the show.

Twitter lit up with complaints and theories about why White quit.

"Chatter about Jack White's abbreviated show at New York's Radio City Music Hall last night has officially lasted longer than the concert itself," noted Spin.com, the music website.

White's skill as a guitarist has enabled him to play with the Rolling Stones, Bob Dylan, Jeff Beck, Alicia Keys and other well-known musicians.

His abrupt exit came a week after Green Day's Armstrong said he would seek substance abuse treatment after losing his temper at the iHeartRadio Festival in Las Vegas, culminating in an expletive-laced tirade followed by the smashing of his guitar. (Editing by Barbara Goldberg and Philip Barbara)

British singer George Michael performs on stage during his ''Symphonica'' tour concert in Vienna September 4, 2012.

Credit: Reuters/Heinz-Peter Bader

LONDON | Mon Oct 1, 2012 3:25am EDT

LONDON (Reuters) - British singer George Michael has canceled his tour of Australia due to "major anxiety" brought on by his recent battle with severe pneumonia, he announced on his website.

The former Wham! frontman said that he would complete his Symphonica Tour dates in Britain in October before seeking treatment.

He had been due to open in Australia in Perth on November 10 before performing in Adelaide, Sydney, Melbourne, Brisbane and Hunter Valley on December 1.

"I have ... announced the cancellation of the shows in Australia which breaks my heart," Michael said in a statement.

The 49-year-old "Careless Whisper" and "Faith" singer fell ill in Vienna last November and was treated under intensive care for a month for a life-threatening illness.

He was forced to postpone his tour but resumed it some 10 months later.

"Since last year's illness I have tried in vain to work my way through the trauma that the doctors who saved my life warned me I would experience," Michael said.

"They recommended complete rest ... but I'm afraid I believed (wrongly) that making music and getting out there to perform for the audiences that bring me such joy would be therapy enough in itself."

He said his return to the stage had brought him "great happiness" and that some of his recent performances were his best to date, but concluded:

"I was wrong to think I could work my way through the major anxiety that has plagued me since I left Austria last December.

"All that's left for me to do is apologize to my wonderful Australian fan base and to promise faithfully that as soon as I completed these shows here in the UK, I will receive the treatment which is so long overdue."

Tickets to his Australian concerts will be refunded.

Michael has sold an estimated 100 million records over his career, but he has hit headlines in recent years for his personal life more often than for his music.

In 1998 he was arrested in California for "engaging in a lewd act" in a public toilet and has had a string of run-ins with British police for possession of narcotics. He also served a term in jail for driving under the influence of cannabis.

1 of 2. U.S. President Barack Obama waves as he departs for travel to Nevada and Colorado, from the White House in Washington, September 30, 2012.

Credit: Reuters/Jonathan Ernst

By Andy Sullivan

WASHINGTON | Mon Oct 1, 2012 9:01am EDT

WASHINGTON (Reuters) - The debate between President Barack Obama and Republican challenger Mitt Romney on Wednesday marks the first time the two candidates will be able to challenge each other directly on the economic issues that have been the focus of the presidential campaign.

Viewers should be able to determine how each candidate fares by keeping an eye on the following five factors:

* ROMNEY ON OFFENSE, OBAMA ON DEFENSE

With less than six weeks to go until the election, Romney is under pressure to deliver a performance that shifts the momentum in his direction.

Obama, on the other hand, merely needs to avoid a catastrophic performance that could cause independent voters to reassess their support.

Both are experienced and competent debaters, but neither appears to enjoy the give and take that occurs at these events.

For each candidate, the challenge will be to rattle their opponent enough to prompt an off-script outburst.

"Obama just wants to avoid any big mistakes. Typically candidates are undone more by their own mistakes than by the successes of their opponents, the witty ripostes or devastating one liners of their opponents," said George Washington University political science professor John Sides.

"For Romney, there's more pressure and he really needs the debate to change the dynamic of the race."

* EYES NEVER LIE

Television is a visual medium, and the body language of the candidates can have a bigger impact than their words.

Democratic Vice President Al Gore's repeated sighs in a 2000 debate with George W. Bush turned voters off, while Bush drew negative attention in 2004 when he scowled while his Democratic opponent John Kerry spoke. Bush's father, President George H.W. Bush, looked at his watch in a 1992 debate, a move that many interpreted as impatient and aloof.

Obama and Romney want to avoid obvious missteps like these, but more subtle signals can also signal to viewers that candidates aren't on the level.

On the other hand, a candidate conveys confidence when he turns his body to face his opponent.

"We'll see them face each other when they think they're going to knock it out of the park," Driver said. "I call it 'navel intelligence.'"

* WHO WINS THE FIRST ROUND?

Alert viewers will be able to get a sense of how the debate will play in the news media by watching the first 30 minutes closely, although the impact of the debate probably won't register in opinion polls until several days after the event.

Candidates need to establish their themes and launch their most important attacks early in the debate, while reporters and analysts are still forming their impressions about how the debate is going, according to former Gore adviser Ron Klain.

"While you can lose a debate at any time, you can only win it in the first 30 minutes," Klain wrote in a memo for the centrist Democratic think tank Third Way.

* THE DEVIL IS IN THE DETAILS

Both candidates have charged each other with playing fast and loose with the facts, and each will try to pin their opponent down on areas where they think they are vulnerable.

Obama frequently charges that Romney's tax and budget plans "don't add up." Expect Obama to challenge Romney to explain which tax loopholes he would close in order to lower income tax rates without adding to budget deficits.

"His tax plan seems to be to just extend tax cuts for the highest income. He has 90 minutes to give specifics," Obama campaign spokeswoman Jen Psaki said last week.

Romney, meanwhile, has indicated that he plans to press Obama when the president strays from the truth. He will have to do so without directly calling the president a liar - a move that could backfire among independent voters.

"Am I going to spend my time correcting things that aren't quite accurate? Or am I going to spend my time talking about the things I want to talk about?" Romney said earlier this month.

* WILL ROMNEY THROW BUSH UNDER THE BUS?

Romney has tried to make the election a referendum on Obama's economic stewardship, but many voters still pin the blame for the sluggish economy and high unemployment on his predecessor in the White House, Republican George W. Bush.

"Until Governor Romney can show why his policies would be different from Bush's policies, then we think it is highly unlikely that he can win," Keefe, Bruyette & Woods analyst Brian Gardner wrote in a research note.

The conservative National Review says Romney should acknowledge that problems like the mounting national debt and the Byzantine tax code were in place long before Obama took office, but argue the current president has failed to fix them.

Taking on the Bush legacy will be tricky. The 43rd president remains an unpopular figure with the public at large, but an out-an-out repudiation could anger Romney's core Republican supporters.

Washington said Pope also doesn't shy away from her femininity and certainly not her sexuality, which has resulted in some steamy scenes with President Grant. The actress said she is loving the fact that not many eyebrows have been raised by the fact that a black female character on a television show is involved in a torrid romance with a white male character.

"I think the big deal is that it's not a big deal, and I think that's cool," Washington said. "What I love is that the conversation is not 'Oh this is such a big deal,' but 'Oh how interesting that this is part of the full picture of who they are.'"

The actress said that it's fun for her to play "inside the Beltway" in a series that is not at all like the current political landscape. Washington is herself very politically aware, and spoke at the recent Democratic National Convention. Her interest in politics stems, she said, from her parents - especially her mother, a retired professor whose dinner parties exposed a young Washington to activism early on.

"As a kid, there would be dinners where her colleagues would be talking about a woman's right to choose, affirmative action and redistricting," Washington recalled. "I grew up talking about these issues and knowing that politics were not separate from us as people."

Washington's next big project is the eagerly awaited Quentin Tarantino film "Django Unchained." The movie is set before the Civil War and Washington plays a slave whose husband (played by Jamie Foxx) seeks to rescue her from a brutal master on a Mississippi plantation.

The project not only reunited Washington and Foxx, who appeared together in the Ray Charles bio-pic "Ray," but it also gave the actress an opportunity to delve into a role that she said was challenging artistically and emotionally taxing. It was a part Washington said she's not sure she would have been able to portray were it not for having the balance of the Olivia Pope role on "Scandal."

"There would be days that would be so hard for me that Jamie Foxx would turn to me and say, 'How are you doing, Olivia," she said. "It was to remind me that [the role as Broomhilda the slave] was not just it. I feel very blessed that at this point in my career I am able to play both of these women, because we have a full range of experience and identity and history. It's exciting to not just be defined by one section as to who we are as women and people of color."

The lawsuit filed by writer Robert Randolph, who was quoted in an article and wrote a book about Travolta's alleged sexual behavior, claims that Singer harmed him when he wrote a letter in response to the book and article, according to court documents.

Judge Malcolm Mackey of Los Angeles Superior Court dismissed the case Thursday because he found, in part, that the letter has free speech protection.

A lawyer representing Travolta and Singer applauded the decision.

"Robert Randolph's ridiculous lawsuit against John Travolta and his attorney Marty Singer never should have been filed," said Lynda Goldman. "Notwithstanding inane tabloid fodder, two individuals who sued Mr. Travolta voluntarily dismissed their cases, and Randolph's case was dismissed by the court. Anyone else who thinks about suing Mr. Travolta should expect a similar result."

The seal of the U.S. Securities and Exchange Commission hangs on the wall at SEC headquarters in Washington, June 24, 2011.

Credit: Reuters/Jonathan Ernst

By Emily Flitter and Sarah N. Lynch

NEW YORK | Sun Sep 30, 2012 8:04pm EDT

NEW YORK (Reuters) - More than two years ago, the Federal Reserve Bank of Chicago was pushing the U.S. Securities and Exchange Commission to get serious about the dangers of superfast computer-driven trading. Only now is the SEC getting around to taking a closer look at some of those issues.

Critics of the SEC say the delay is part of a pattern of inaction in dealing with the fallout from high frequency trading and shows that the regulator does not yet fully appreciate how fears of machine-driven market meltdowns are driving investors away from U.S. markets.

Even as the SEC gears up for a meeting on Tuesday to discuss how to tame rapid-fire trading - the eighth public forum it has had in two years on market structure issues - regulators in Canada, Australia and Germany are moving ahead with plans to introduce speed limits to safeguard markets from the machines.

One item up for discussion is whether regulators should require trading firms and exchanges to deploy a "kill switch" to shut down a runaway high-speed computer program. That is one of the seven recommendations the Chicago Fed made to the SEC in its March 25, 2010 letter.

Less than two months later, the Dow Jones Industrials would plunge 700 points in a matter of seconds. The May 6, 2010 "flash crash" sparked a national debate over the merits of stock trading that takes place in fractions of a second, but it only led to modest action from the regulators.

Since then, there have been a series of smaller - though still frightening - events for investors, including the near collapse of major market maker Knight Capital after a software glitch led to violent price swings on August 1 in more than 100 stocks. And still the move toward reforms has been slow.

"So far, the SEC hasn't seemed to think high frequency trading is a problem," said Edward Kim, a former senior vice president at the NASDAQ Stock Market and now a consultant with auditing firm Grant Thornton.

Kim, who testified on September 7 before an SEC panel in San Francisco on the potential pitfalls of high frequency trading, said he has seen firsthand the fallout the flash crash has had on investor confidence. Kim noted his father was so rattled by the rapid market meltdown, he subsequently sold most of his stocks.

Institutional buy-and-hold investors also remain frustrated.

Mutual fund manager O. Mason Hawkins, who met with the SEC a month after the flash crash in June 2010 to provide evidence about how rapid-fire machine trading was destabilizing the market, has the same view today, according to a representative for his firm, Southeastern Asset Management.

Even proponents of algorithmic trading, which uses sophisticated computer programs to trawl the markets for orders to trade on, are coming out and saying speed isn't everything.

High frequency trading effectively treats orders from retail investors like a tip sheet to be harvested and discarded said Andrew Van Hise, managing director at the investment management firm SEQA Capital Advisors in New York and the designer of the algorithmic trading program for Steven A. Cohen's $16 billion SAC Capital Advisors hedge fund.

"By the time a standard retail or institutional order reaches an exchange, it's been looked at in essence by a number of algorithms which have cherry picked it," said Van Hise. "What finds its way to the traditional exchanges is viewed by market participants as exhaust."

To be sure, it is not as if the SEC has simply stood idly by and allowed the machines to run amok. The agency did put in place some new safeguards, such as circuit breakers on stocks, after the May 2010 flash crash.

The circuit breakers are intended to prevent a marketwide crash by briefly halting trading in particular stocks displaying sharp price moves within a five-minute window, giving the algorithms a chance to let go of trading patterns that may have turned into vicious cycles.

In a move that some say is long overdue, the SEC has begun setting up a new analytical and research team to examine the trading patterns of high-frequency firms. The new group, which will receive and process the same data feeds that high frequency traders get, will enable the SEC to better police the markets.

And recently, the SEC fined the New York Stock Exchange's operator, NYSE Euronext, $5 million for allegedly giving some customers "an improper head start" on proprietary trading information.

But U.S. securities regulators, noting that high frequency trading has brought trading costs down for many investors by pumping more liquidity into the system, do not seem to be operating under any sense of urgency.

"We are into a space now where there aren't any massive changes to be made," said Daniel Gallagher, a Republican commissioner at the SEC who also previously worked in its Trading and Markets division. "There are fine-tuning and dials."

In January 2010, the SEC published a 74-page "concept release" on restructuring the markets, in part because of the rise of high frequency trading. The SEC uses concept releases as a blueprint for future regulation.

The concept release included ideas like a "trade-at" rule, which would give preference to the price in a proposed trade rather than to its position in the queue, as well as limitations on when high frequency traders could suddenly pull out of the market.

The proposal generated more than 200 comments, including many from money managers complaining that high frequency trading was making stock trading more volatile. The Chicago Fed submitted its letter to the SEC in response to the proposal. But the concept release has not given rise to much new regulation.

Gregg Berman, a nuclear astrophysicist who is one of the SEC's leading experts on stock market structure, said regulators found most of the complaints from the public and money managers about high frequency trading to be anecdotal.

"I've heard many suggestions for how we might slow down the markets. But I think some ideas have ignored the fact that we have markets in which investors demand the ability to trade on an immediate and continuous basis, not at discrete intervals," said Berman.

He continued: "It's like saying 'Let's use the rules of train travel, in which every train is on a specific track, to try to dictate how cars should behave, even though cars can drive between the lanes and on the shoulder.'"

A more aggressive approach by the SEC on high frequency trading cannot come soon enough for those who say the SEC's inaction is hurting both Main Street and Wall Street. They note that even as the Dow Jones creeps closer to its all-time high, trading volumes remain near the low levels seen during the 2008-09 financial crisis.

Retail investors have withdrawn more than $313 billion from the U.S. stock market since 2008, meaning ordinary investors have not participated broadly in the market recovery. Some market experts attribute fear of another flash crash as well as concerns that the playing field is far from level for making investors wary of stocks.

RAGE AGAINST THE MACHINE

A few enterprising high frequency trading pioneers are taking matters into their own hands by designing new trading platforms that are being billed as trading zones that are protected from high frequency programs.

But that could lead to further fragmentation of the market, given U.S. stocks are now traded on a myriad of exchanges and electronic platforms.

Keith Ross Jr, a former chief executive officer of GETCO, one of the largest high frequency firms, is now running a trading platform that bills itself as one that is not subject to abusive trading by high frequency firms.

Ross' company, PDQ ATS, processes orders by imposing a 20-millisecond delay on them and then holding an auction. The delay may not seem like much, but it is enough to deter high frequency traders from jumping in front of other traders, or trying to influence trading by flooding the market with bids and offers for stocks they don't actually intend to trade.

PDQ, which launched in 2008, is gaining traction with both asset managers and high frequency firms that Ross says are willing to play by the rules and still see room to make a profit. But the new platform is small, processing just under 100 million shares of marketable orders a day, 30 percent of which get filled.

"My expectation and my hope would be that the market has an opportunity to solve the problem itself," Ross said.

Similarly, Bradley Katsuyama, a former top trader in the U.S. for RBC Capital Markets, recently left the bank to launch an exchange he says will employ a strategy that will prevent high frequency trading firms from gaining an unfair advantage over mutual funds and other retail investors. He declined to provide specifics on his start-up firm, IEX Group Inc.

Still, plenty of individual investors are looking for the SEC to do something more.

One of those is Jim Sutton, who has been managing his own pension payout for the past 12 years. The 69-year-old Des Moines, Iowa, resident wrote a letter to the SEC on July 4 asking for a new rule that would slow down trading in the stock market to keep it within the realms of human perception.

He said slowing down the markets, just a bit, would improve investor confidence. But Sutton says he is still waiting for a response from the regulator. (Reporting by Emily Flitter and Sarah N. Lynch, additional reporting by Aruna Viswanatha; editing by Matthew Goldstein, Jennifer Ablan and Martin Howell; desking by G Crosse)

BAKU (Reuters) - Israel's "go-it-alone" option to attack Iran's nuclear sites has set the Middle East on edge and unsettled its main ally at the height of a U.S. presidential election campaign.

Prime Minister Benjamin Netanyahu exudes impatience, saying Tehran is barely a year from a "red line" for atomic capacity. Many fellow Israelis, however, fear a unilateral strike, lacking U.S. forces, would fail against such a large and distant enemy.

But what if, even without Washington, Israel were not alone?

Azerbaijan, the oil-rich ex-Soviet republic on Iran's far northern border, has, say local sources with knowledge of its military policy, explored with Israel how Azeri air bases and spy drones might help Israeli jets pull off a long-range attack.

That is a far cry from the massive firepower and diplomatic cover that Netanyahu wants from Washington. But, by addressing key weaknesses in any Israeli war plan - notably on refueling, reconnaissance and rescuing crews - such an alliance might tilt Israeli thinking on the feasibility of acting without U.S. help.

It could also have violent side-effects more widely and many doubt Azeri President Ilham Aliyev would risk harming the energy industry on which his wealth depends, or provoking Islamists who dream of toppling his dynasty, in pursuit of favor from Israel.

Yet despite official denials by Azerbaijan and Israel, two Azeri former military officers with links to serving personnel and two Russian intelligence sources all told Reuters that Azerbaijan and Israel have been looking at how Azeri bases and intelligence could serve in a possible strike on Iran.

"Where planes would fly from - from here, from there, to where? - that's what's being planned now," a security consultant with contacts at Azeri defense headquarters in Baku said. "The Israelis ... would like to gain access to bases in Azerbaijan."

"ICEBERG" RELATIONSHIP

That Aliyev, an autocratic ally of Western governments and oil firms, has become a rare Muslim friend of the Jewish state - and an object of scorn in Tehran - is no secret; a $1.6-billion arms deal involving dozens of Israeli drones, and Israel's thirst for Azerbaijan's Caspian Sea crude, are well documented.

Israel's foreign minister visited Baku in April this year.

But a leaked U.S. diplomatic cable from 2009 quoted Aliyev, who succeeded his father in 2003, describing relations with Israel as "like an iceberg, nine tenths ... below the surface".

That he would risk the wrath of his powerful neighbor by helping wage war on Iran is, however, something his aides flatly deny; wider consequences would also be hard to calculate from military action in a region where Azerbaijan's "frozen" conflict with Armenia is just one of many elements of volatility and where major powers from Turkey, Iran and Russia to the United States, western Europe and even China all jockey for influence.

Nonetheless, Rasim Musabayov, an independent Azeri lawmaker and a member of parliament's foreign affairs committee, said that, while he had no definitive information, he understood that Azerbaijan would probably feature in any Israeli plans against Iran, at least as a contingency for refueling its attack force:

"Israel has a problem in that if it is going to bomb Iran, its nuclear sites, it lacks refueling," Musabayov told Reuters.

"I think their plan includes some use of Azerbaijan access.

"We have (bases) fully equipped with modern navigation, anti-aircraft defenses and personnel trained by Americans and if necessary they can be used without any preparations," he added.

U.S. CONCERNS

The administration of U.S. President Barack Obama has made clear it does not welcome Israel's occasional talk of war and that it prefers diplomacy and economic sanctions to deflect an Iranian nuclear program that Tehran denies has military uses.

Having also invested in Azerbaijan's defenses and facilities used by U.S. forces in transit to Afghanistan, Washington also seems unlikely to cheer Aliyev joining any action against Iran.

The Azeri president's team insist that that will not happen.

"No third country can use Azerbaijan to perpetrate an attack on Iran. All this talk is just speculation," said Reshad Karimov from Aliyev's staff. He was echoing similar denials issued in Baku and from Israel when the journal Foreign Policy quoted U.S. officials in March voicing alarm that Azeri-Israeli action could thwart U.S. diplomacy toward Iran and across the Caucasus.

Israeli officials dismiss talk of Azeri collaboration in any attack on Iran but decline public comment on specific details.

Even speaking privately, few Israeli officials will discuss the issue. Those who do are skeptical, saying overt use of Azeri bases by Israel would provoke too many hostile reactions. One political source did, however, say flying unmarked tanker aircraft out of Azerbaijan to extend the range and payloads of an Israeli bombing force might play a part in Israeli planning.

Though denying direct knowledge of current military thinking on Iran, the Israeli said one possibility might be "landing a refueling plane there, made to look like a civilian airliner, so it could later take off to rendezvous mid-air with IAF jets".

A thousand miles separates Tehran and Tel Aviv, putting much of Iran beyond the normal ranges of Israel's U.S.-made F-16 bombers and their F-15 escorts. So refueling could be critical.

INTELLIGENCE COOPERATION

There is far from unanimity among Israeli leaders about the likelihood of any strike on Iran's nuclear plants, whether in a wider, U.S.-led operation or not. Netanyahu's "red line" speech to the United Nations last week was seen by many in Israel as making any strike on Iran unlikely - for at least a few months.

Many, however, also assume Israel has long spied on and even sabotaged what the Western powers say are plans for atomic weapons which Israel says would threaten its very existence.

A second Israeli political source called the idea of Azerbaijan being either launch pad or landing ground for Israeli aircraft "ludicrous" - but agreed with the first source that it was fair to assume joint Israeli-Azeri intelligence operations.

The Azeri sources said such cooperation was established.

As part of last year's arms deal, Azerbaijan is building up to 60 Israeli-designed drones, giving it reconnaissance means far greater than many analysts believe would be needed just to guard oil installations or even to mount any operations against the breakaway, ethnic Armenian enclave of Nagorno-Karabakh.

"With these drones, (Israel) can indirectly watch what's happening in Iran, while we protect our borders," legislator Musabayov said - a view shared by Azeri former military sources.

Less reserved than Israeli officials, the sources in Azerbaijan and in Russian intelligence, which keeps a close eye on its former Soviet backyard, said Baku could offer Israel much more, however - though none believed any deal was yet settled.

The country, home to nine million people whose language is close to Turkish and who mostly share the Shi'ite Muslim faith of Iran, has four ex-Soviet air bases that could be suitable for Israeli jets, the Azeri sources said. They named central Kyurdamir, Gyanja in the west and Nasosny and Gala in the east.

The Pentagon says it helped upgrade Nasosny airfield for NATO use. It also uses Azeri commercial facilities in transit to Afghanistan. But U.S. military aid to Azerbaijan is limited by Washington's role as a mediator in its dispute with Armenia.

One of the sources with links to the Azeri military said: "There is not a single official base of the United States and even less so of Israel on the territory of Azerbaijan. But that is 'officially'. Unofficially they exist, and they may be used."

The source said Iran had been a main topic of talks in April with Israel's Soviet-born foreign minister, Avigdor Lieberman.

RECONNAISSANCE, RESCUE

Azeri tarmac, a shorter flight from key sites in northern Iran including the Fordow underground uranium enrichment plant and missile batteries at Tabriz, might feature in Israeli war planning in less direct ways, the former Azeri officers said.

With Israel wary of its vulnerability to pressure over air crew taken prisoner, plans for extracting downed pilots may be a key feature of any attack plan. Search and rescue helicopters might operate from Azerbaijan, the sources said - or planes that were hit or low on fuel could land at Azeri bases in extremis.

Such engagement carries risks for Azerbaijan and its oil platforms and pipelines operated with international companies.

Defending against Iran is part of public debate in Baku. The United States has provided Azerbaijan with three Coast Guard cutters and has funded seven coastal radar sites as well as giving Baku other help in protecting its oil installations.

Relations have long been strained between the former Soviet state and Iran, which is home to twice as many ethnic Azeris as Azerbaijan itself. Tehran beams an Azeri-language television channel over the border which portrays Aliyev as a puppet of Israel and the West, as well as highlighting corruption in Baku.

Faced with an uneven balance of force, Aliyev's government makes no bones about Israel being an ally. As one presidential aide, speaking on condition of anonymity, explained: "We live in a dangerous neighborhood; that is what is the most powerful driving force for our relationship with Israel."

However, Israel's confrontation with Iran may turn out, the arms build-up in Azerbaijan, including recent Israeli upgrades for its Soviet T-72 tanks, may have consequences for the wider region and for the stand-off with Armenia - consequences that would trouble all the powers with stakes in the Caspian region.

"We keep buying arms. On the one hand, it's a good strategy to frighten Armenia," one of the former Azeri officers said of the shaky, 18-year-old ceasefire over Nagorno-Karabakh. "But you don't collect weapons to hang on the wall and gather dust.

1 of 2. U.S. President Barack Obama waves as he departs for travel to Nevada and Colorado, from the White House in Washington, September 30, 2012.

Credit: Reuters/Jonathan Ernst

By Andy Sullivan

WASHINGTON | Sun Sep 30, 2012 1:36pm EDT

WASHINGTON (Reuters) - The debate between President Barack Obama and Republican challenger Mitt Romney on Wednesday marks the first time the two candidates will be able to challenge each other directly on the economic issues that have been the focus of the presidential campaign.

Viewers should be able to determine how each candidate fares by keeping an eye on the following five factors:

* ROMNEY ON OFFENSE, OBAMA ON DEFENSE

With less than six weeks to go until the election, Romney is under pressure to deliver a performance that shifts the momentum in his direction.

Obama, on the other hand, merely needs to avoid a catastrophic performance that could cause independent voters to reassess their support.

Both are experienced and competent debaters, but neither appears to enjoy the give and take that occurs at these events.

For each candidate, the challenge will be to rattle their opponent enough to prompt an off-script outburst.

"Obama just wants to avoid any big mistakes. Typically candidates are undone more by their own mistakes than by the successes of their opponents, the witty ripostes or devastating one liners of their opponents," said George Washington University political science professor John Sides.

"For Romney, there's more pressure and he really needs the debate to change the dynamic of the race."

* EYES NEVER LIE

Television is a visual medium, and the body language of the candidates can have a bigger impact than their words.

Democratic Vice President Al Gore's repeated sighs in a 2000 debate with George W. Bush turned voters off, while Bush drew negative attention in 2004 when he scowled while his Democratic opponent John Kerry spoke. Bush's father, President George H.W. Bush, looked at his watch in a 1992 debate, a move that many interpreted as impatient and aloof.

Obama and Romney want to avoid obvious missteps like these, but more subtle signals can also signal to viewers that candidates aren't on the level.

On the other hand, a candidate conveys confidence when he turns his body to face his opponent.

"We'll see them face each other when they think they're going to knock it out of the park," Driver said. "I call it 'navel intelligence.'"

* WHO WINS THE FIRST ROUND?

Alert viewers will be able to get a sense of how the debate will play in the news media by watching the first 30 minutes closely, although the impact of the debate probably won't register in opinion polls until several days after the event.

Candidates need to establish their themes and launch their most important attacks early in the debate, while reporters and analysts are still forming their impressions about how the debate is going, according to former Gore adviser Ron Klain.

"While you can lose a debate at any time, you can only win it in the first 30 minutes," Klain wrote in a memo for the centrist Democratic think tank Third Way.

* THE DEVIL IS IN THE DETAILS

Both candidates have charged each other with playing fast and loose with the facts, and each will try to pin their opponent down on areas where they think they are vulnerable.

Obama frequently charges that Romney's tax and budget plans "don't add up." Expect Obama to challenge Romney to explain which tax loopholes he would close in order to lower income tax rates without adding to budget deficits.

"His tax plan seems to be to just extend tax cuts for the highest income. He has 90 minutes to give specifics," Obama campaign spokeswoman Jen Psaki said last week.

Romney, meanwhile, has indicated that he plans to press Obama when the president strays from the truth. He will have to do so without directly calling the president a liar - a move that could backfire among independent voters.

"Am I going to spend my time correcting things that aren't quite accurate? Or am I going to spend my time talking about the things I want to talk about?" Romney said earlier this month.

* WILL ROMNEY THROW BUSH UNDER THE BUS?

Romney has tried to make the election a referendum on Obama's economic stewardship, but many voters still pin the blame for the sluggish economy and high unemployment on his predecessor in the White House, Republican George W. Bush.

"Until Governor Romney can show why his policies would be different from Bush's policies, then we think it is highly unlikely that he can win," Keefe, Bruyette & Woods analyst Brian Gardner wrote in a research note.

The conservative National Review says Romney should acknowledge that problems like the mounting national debt and the Byzantine tax code were in place long before Obama took office, but argue the current president has failed to fix them.

Taking on the Bush legacy will be tricky. The 43rd president remains an unpopular figure with the public at large, but an out-an-out repudiation could anger Romney's core Republican supporters.